I imagine that the situation is fairly typical: A less than scrupulous financial planner, or perhaps someone selling comprehensive “financial and estate” services, (or an estate planning “paralegal”) prepares trusts and wills to be signed by a cooperative lawyer-“partner.” The lawyer simply signs off on the documents, and the two split the fee. This is fairly common (for example) in the relationship between lawyers and collection agencies. The agency prepares the paperwork, and the lawyer just signs off. The same is true for trust “mills” or “factories,” which pump out generic trust documents like so many widgets.
I was once at a Financial Planning Association chapter meeting, when a “financial services” fellow pulled me aside, and suggested a very similar relationship. Now, please do not get me wrong — as a rule I have found financial planners to be extremely ethical and professional. However, my antennae went up immediately with this individual, and another planner who overheard our conversation pointedly told him at one point, “you’ve got to be careful. You can’t practice law without a license.”
That fellow never returned.
In 1990, the Colorado Bar Association addressed this very issue in “Formal Opinion 87,” Collaboration with non-lawyers in Preparation and Marketing of Estate Planning Documents
The Colorado Bar determined that this was unethical, on numerous grounds:
— The arrangement aids the unauthorized practice of law
The purpose of the ethical rule, Rule DR3-101(A), is to protect “the public in its need for and reliance on the integrity and competence of those who undertake to render legal services, recognizing that competent professional judgment is the product of a trained familiarity with law and legal process and a disciplined, analytical approach to legal problems coupled with a firm ethical commitment.”
The Colorado Bar cited a previous Colorado Supreme Court decision, which stated that the marketing and preparation of living trust documents constitutes a violation of the Bar Act, constituting the unauthorized practice of law. People v. Schmitt, 126 Colo. 546, 251 P.2d 915 (1952). However, the Bar placed legal aid “kits” prepared for and/or used by the non lawyer in the same category:
Both the “factory” and its non-lawyer salesperson are engaged in the practice of law by preparing and marketing living trust packages, and the attorney’s assistance to the factory is an integral part of this process. A lawyer may not assist a non-lawyer corporation which provides legal services to third parties.
The Bar went on:
[A] publishing house’s marketing and preparation of living trust “kits” constitutes the unauthorized practice of law as decided in Schmitt, supra. While we hesitate to say that any attorney would violate DR 3-101(A) by representing a client who had obtained such a living trust kit, an attorney who willingly associated himself or herself with such an enterprise, allowing his or her name to be given out in the living trust kits, would certainly violate the rule.
—Fee splitting is prohibited
Another problem with these arrangements is that it violates the near universal rule against fee splitting. Again, the Bar explains the reasoning:
As the American Bar Association has recognized, the purpose of the fee-sharing prohibition is to avoid the possibility of non-lawyer interference with the exercise of the lawyer’s independent professional judgment in representing a client, and to ensure that the total fee paid by the client is not unreasonably high.
Yet, this does not mean that a lawyer is wrong in teaming up with other professionals in the estate planning process. Obviously, the ideal “team” is an alliance between a client’s accountant, financial planner, and estate planner. The danger, however, is the possibility that the lawyer’s independent judgment will be usurped by an unscrupulous and/or uninformed lay person:
The Committee recognizes that a multi-professional “team” approach is often appropriately used in the estate planning process. However, a lawyer involved in such a team must take great care to ensure that such an arrangement does not limit or preclude the lawyer’s exercise of independent professional judgment, either with regard to matters delegated to the non-lawyer, or particularly in advising the client as to whether a living trust is appropriate at all.
The bottom line: Let the buyer beware. There are tons of sharks out there. For those of you who attend estate planning seminars, watch the professionals closely during their sales presentation:
If there is a “team,” who is doing the talking?
Ask questions. Figure out who on the team prepares the documents?
Also — who do you interact with as the documents are prepared? If you deal with the insurance agent or “para planner” instead of the attorney, run!
Also, is it high pressure? Are you given a “deal” or a “discount” that will evaporate if you do not sign up right now?
Does the attorney (or other team member) mention anything about funding the trust? If you fail to place the real property, stock, or account in the name of the trust — as often happens with “mills” — you end up with a dry, unfunded trust. That’s a piece of paper which doesn’t do what you paid for.
In the final analysis, remember that the old rule that “you get what you pay for” generally applies in the estate planning field. If you get a “mill” or a “factory” trust — that’s what you get.
If you buy a trust CD for $50, you get … a $50 trust. That is…
if you’re lucky.